U.S. Bankruptcy Judge Sean Lane in Manhattan approved the
merger at a hearing yesterday while denying approval for
Horton’s severance following opposition from the U.S.
government, which called the pay a “golden parachute.”

“The merger is a terrific result,” said Lane, who will
issue a written decision explaining his reasoning. Approving
Horton’s severance now “is just not appropriate.”

Approval of the agreement moves Fort Worth, Texas-based
American a step closer to finishing its reorganization and
exiting bankruptcy protection. The carrier filed for bankruptcy
in November 2011 and announced its merger with US Airways in
February.

The tie-up with US Airways will create the world’s largest
carrier and will be completed through a bankruptcy
reorganization plan for American. That plan requires creditor
support and separate approval from Lane. The court hearing to
approve the bankruptcy plan should occur in about six months,
said Stephen Karotkin, an attorney for American.

Combined Company

The combined company will operate under the American
Airlines name. US Airways Chief Executive Officer Doug Parker
will be CEO of the merged company, while AMR’s CEO, Horton, will
become chairman.

Horton’s $19.9 million severance, which was to be paid half
in stock and half in cash after the merger is completed, was
opposed by the U.S. government’s bankruptcy watchdog, the U.S.
Trustee, which said the payment violates bankruptcy laws.

“The same bankruptcy code that allows a company to
restructure debts, and reduce employee pay and benefits, also
restricts payments to senior executives and insiders,” Cliff White, director of the Executive Office for U.S. Trustees, said
in a statement after the hearing.

During the hearing, Lane asked why approval of the
severance shouldn’t be put off until later in the bankruptcy
proceeding when American seeks court approval for its
reorganization plan.

“Why can’t it and why shouldn’t it be in the plan as
opposed to here?” the judge said.

Board Ratification

American defended the package, saying it is conditioned on
the merger closing and will be paid by the combined company and
not AMR. Karotkin, AMR’s attorney, said the airline was willing
to amend the agreement with Horton so that the payment is
subject to ratification by the board of directors of the new
company.

“Judge Lane’s approval of the merger agreement today
allows us to continue progressing forward with our planned
merger,” the two airlines said in a joint statement. “We are
gratified to know that he considers the merger an ‘excellent
result’ for stakeholders.”

Jack Butler, an attorney at Skadden, Arps, Slate, Meagher &
Flom LLP, who represents unsecured creditors in the bankruptcy,
said after the hearing that the companies will review Lane’s
written decision and then determine how to proceed with Horton’s
severance agreement.

American and Tempe, Arizona-based US Airways will
“continue to move enthusiastically down the merger path,” he
said.